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domestic partner coverage


Guest Kerry

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What is the tax treatment of health benefits provided to domestic partners (the partner of the ee)under a self-funded plan structure?

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Guest kchristy

Kerry, that's a short question for such a big topic, but here's a brief response for you:

If the employee cannot claim the domestic partner as a dependent on his or her tax return, the employee must have the "fair market value" of the benefits imputed to him or her as income , and the employee cannot pay any costs for the domestic partner's premiums through the cafeteria plan. If, as may be the case, the employee *can* claim the domestic partner as a dependent on his or her tax return, then the employee can deduct the premium.

As for how best to administer a domestic partner program, I wish I could tell you. There are many more issues surrounding this than I have been exposed to - and I've done a lot of research on it - so I strongly advise you to do a lot of homework on this one.

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What kchristy said.

We have a self-funded plan and have added same-sex DP coverage effective 1/1/99 - actually have about 6 takers! Our enrollment materials very clearly state that while the EMPLOYEE (and other IRS dependent) portion of the contribution may be pre-tax, the portion attributable to the DP must be post-tax and imputed. Additionally, because of our prehistoric systems, we can't handle post-tax payroll deductions for DPs so the employee has to write us a check each month.

No flak, though - so far it seems like it was a good decision.

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ive had alot of discussions with some of our bigger clients re this issue. how have you been calculating the "fair market value" of the DP benefit? have you considered using your COBRA premium rate to determine that value or are you using some other premium rate? just curious.

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Guest jamesfdavis

I'd use the spouse (or dependent) component of the two-party COBRA rate and divide it by 102% to take out the COBRA administration surcharge.

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That works in a situation where there is only a spousal equivalent, but we ran into a kind of philosophical issue in terms of family coverage. For example, suppose you have 3-tier coverage and the employee has two children as dependents, making it family coverage already. He/she then wants to add the DP. Under normal circumstances, this would be cost-neutral to the ee. We decided to use this approach for our plan as well.

Of course, we have a 6-tier plan (no kidding) so this scenario would never happen. So for the purpose of imputed income, we take the COBRA rate and carve out one dependent to get the imputed amount.

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  • 1 month later...

We have a composite rate for our health insurance, how do you compute the taxable benefit for domestic partner coverage?

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rodd

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